CROWN CRAFTS INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED MARCH 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934

COMMISSION FILE NO. 1-7604
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CROWN CRAFTS, INC.
(Exact name of registrant as specified in its charter)

GEORGIA 58-0678148
(State of Incorporation) (I.R.S. Employer Identification No.)
916 S. BURNSIDE AVE. 70737
GONZALES, LOUISIANA (Zip Code)
(Address of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(225) 647-9100

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

TITLE OF CLASS NAME OF EXCHANGE ON WHICH REGISTERED
Common Stock, $1.00 par value NASDAQ OTC Bulletin Board
Common Share Purchase Rights NASDAQ OTC Bulletin Board

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [X] No [ ]

As of June 7, 2002, 9,421,437 shares of Common Stock were outstanding, and
the aggregate market value of the Common Stock (based upon the closing price of
these shares on that date) held by persons other than Officers, Directors, the
Company's Employee Stock Ownership Plan, and 5% shareholders was approximately
$3,649,279.
DOCUMENTS INCORPORATED BY REFERENCE:

Crown Crafts, Inc. Proxy Statement in connection with its Annual Meeting of
Shareholders
on August 27, 2002 (Part III).
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PART I

ITEM 1. BUSINESS

Crown Crafts, Inc., a Georgia corporation founded in 1957, operates
indirectly through its subsidiaries in the Infant Products segment within the
Consumer Products industry. The Infant Products segment consists of infant
bedding, bibs, infant soft goods and accessories. Sales are generally made
directly to retailers, primarily mass merchants, large chain stores and gift
stores. These products are marketed under a variety of Company-owned trademarks,
under trademarks licensed from others, without trademarks as unbranded
merchandise and with customers' private labels.

In response to changing business conditions in the consumer products
industry, the Company made significant changes in its business operations over
the last two and one-half years. In addition to a program of cost reductions and
rationalization, the Company outsourced virtually all of its manufacturing to
domestic and foreign contract manufacturers with the exception of the specialty
hand wovens produced by Churchill Weavers and screen-printed infant bibs
produced by Burgundy in Mexico. The Woven Products division, with manufacturing
primarily in north Georgia, was sold on November 14, 2000 and net proceeds of
$32.3 million were used to reduce debt. Following the outsourcing of adult
bedding, the Roxboro, North Carolina plant was sold on June 14, 2001 and the
proceeds of $8.0 million were used to reduce debt. Also, the Company made a
decision to exit the Adult Bedding and Bath business, and its net assets related
to that business of $12.4 million were sold effective July 23, 2001. Proceeds of
the sale were $8.5 million cash plus the assumption of liabilities of $3.4
million as well as the assumption of certain contingent liabilities. Cash from
the sale was used to reduce debt. Following the sale of the Adult Bedding and
Bath business, the Company is now primarily in the infant and juvenile products
business, but in describing the results of operations for fiscal 2000 and 2001,
reference is made to all of the product groups. Because of the sale of assets
and the refinancing that occurred July 23, 2001, the historical results are not
indicative of the Company's future operations.

PRODUCTS

The Company's primary focus is on infant and juvenile products.
Historically, the company's products also included two additional groups: 1)
bedroom and bath products and 2) throws.

Infant products include crib bedding, diaper stackers, mobiles, bibs,
receiving blankets, burp cloths, bathing accessories and other infant soft goods
and accessories.

Throws are manufactured and imported in a variety of colors, designs and
fabrics, including cotton, acrylic, cotton/acrylic blends, rayon, wool, fleece
and chenille.

The Company's bedroom products included comforters, comforter sets, sheets,
pillowcases, sheet sets, pillow shams, bed skirts, duvets, decorative pillows,
coverlets and jacquard-woven bedspreads.

During the fiscal years ended March 31, 2002, April 1, 2001 and April 2,
2000, bedroom and bath products represented 17%, 37% and 43% of consolidated net
sales; throws represented 3%, 22% and 22% of consolidated net sales; and infant
and juvenile products represented 80%, 41%and 35%, respectively, of consolidated
net sales.

PRODUCT DESIGN AND STYLING

The Company's research and development expenditures focus primarily on
product design and styling. The Company believes styling and design are key
components to its success. The Company's designs include traditional,
contemporary, textured and whimsical patterns. The Company designs and
manufactures products across a broad spectrum of retail price points and is
continually developing new designs for all of its product groups.

The Company's designers and stylists work closely with the marketing staff
and licensors to develop new designs. The Company develops internally and
obtains designs from numerous sources, including graphic artists, decorative
fabric manufacturers, apparel designers, and its employees. The Company utilizes
computer

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aided design systems to increase its design flexibility and reduce costs. In
addition, these systems significantly shorten the time for responding to
customer demands and changing market trends. The Company also creates designs
for exclusive sale by certain of its customers.

SALES AND MARKETING, CUSTOMERS

The Company markets its products through a national sales force consisting
of salaried sales executives and employees and independent commissioned sales
representatives. Independent representatives are used most significantly in
sales to the gift trade and infant markets. Sales outside the United States are
made primarily through distributors.

The Company's customers consist principally of mass merchants, chain
stores, department stores, specialty home furnishings stores, wholesale clubs,
gift stores and catalogue and direct mail houses. The table below indicates
customers representing more than 10% of gross sales.

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* Less than 10%.

The Company's sales offices are located in Huntington Beach, California,
Gonzales, Louisiana, and Rogers, Arkansas. The Company sells substantially all
of its products to retailers for resale to consumers. The Company's infant
product subsidiaries generally introduce new products once each year during the
annual Juvenile Products Manufacturers' Association ("JPMA") trade show. Private
label products manufactured by the Company are introduced throughout the year.
New product introductions for the gift trade are concentrated in January through
March and June through August when Churchill Weavers participates in numerous
local and regional gift shows.

In fiscal 2002, approximately 0.8% of the Company's gross sales were made
through its outlet stores. During fiscal 2001, stores in Calhoun, Georgia and
Rancho Santa Margarita, California were closed. The Company's Roxboro, North
Carolina store was sold on July 17, 2001.

MANUFACTURING

The Company's infant products are produced primarily by domestic and
foreign contract manufacturers. These products are then warehoused and shipped
from facilities in Compton, California and Gonzales, Louisiana.

RAW MATERIALS

The principal raw materials used in the manufacture of infant comforters,
sheets and accessories are printed and solid color cotton and polycotton
fabrics, and polyester fibers used as filling material. The principal raw
materials used in the manufacture of throws and other products are natural-color
and pre-dyed 100% cotton yarns and acrylic yarns. The principal raw materials
used in the production of infant bibs are knit-terry polycotton, woven
polycotton and vinyl fabrics. Although the Company usually maintains supply
relationships with only a limited number of suppliers, the Company believes
these raw materials presently are available from several sources in quantities
sufficient to meet the Company's requirements.

The Company uses significant quantities of cotton, either in the form of
cotton fabric or polycotton fabric. Cotton is subject to ongoing price
fluctuations. The price fluctuations are a result of cotton being an
agricultural product subject to weather patterns, disease and other factors as
well as supply and demand

2

considerations, both domestically and internationally. Significant increases in
the price of cotton could adversely affect the Company's operations.

SEASONALITY, INVENTORY MANAGEMENT

Historically, the Company has experienced a seasonal sales pattern in which
sales are lowest in the first fiscal quarter and peak in the second fiscal
quarter.

The Company carries normal inventory levels to meet delivery requirements
of customers. Customer returns of merchandise shipped are approximately 1.8% of
gross sales.

ORDER BACKLOG

The Company's backlog of unfilled customer orders believed by management to
be firm were $3.2 million and $15.1 million at May 26, 2002 and June 3, 2001,
respectively. The decrease resulted from the sale of the Adult Bedding and Bath
business effective July 23, 2001. The majority of these unfilled orders are
shipped within approximately eight weeks, and none are expected to be shipped
beyond the completion of the fiscal year ending March 30, 2003. Due to the
prevalence of quick-ship programs adopted by its customers, the Company does not
believe that its backlogs are a meaningful indicator of future business.

TRADEMARKS, COPYRIGHTS AND PATENTS

The Company's products are marketed in part under well-known trademarks.
The Company considers its trademarks to be of material importance to its
business. Infant products carry the trademarks Red Calliope(R), Little
Bedding(R), NoJo(R), Hamco(R) and Pinky Baby(R). Protection for these trademarks
is obtained through domestic registrations.

Certain products are manufactured and sold pursuant to licensing agreements
for trademarks that include, among others, Disney(R). The licensing agreements
for the Company's designer brands generally are for an initial term of one to
five years, and may or may not be subject to renewal or extension. Sales of
product under the Company's licenses with Disney Enterprises, Inc. accounted for
26% of the Company's total gross sales volume during fiscal 2002.

Many of the designs used by the Company are copyrighted by other parties,
including trademark licensors, and are available to the Company through
copyright licenses. Other designs are the subject of copyrights and design
patents owned by the Company.

During the fiscal year ended March 28, 1999, the Company entered into
licensing agreements with Calvin Klein, Inc. and Disney Enterprises, Inc. The
Calvin Klein license grants the Company the right to produce and sell bedroom
and bath products under the Calvin Klein brand. The Disney license expands the
Company's right to produce and sell products featuring Disney characters. The
current Disney license expires December 31, 2002. Following the sale of the
Adult Bedding and Bath business effective July 23, 2001, the Company no longer
has a Calvin Klein license. During fiscal year 2002, 14% of gross sales was
attributable to the Calvin Klein license.

The Company's aggregate commitment for minimum guaranteed royalty payments
under all of its license agreements is $230,000, $20,000, and $0 for fiscal
2003, 2004, and thereafter, respectively. The Company believes that future sales
of royalty products will exceed amounts required to cover the minimum royalty
guarantees. The Company's total royalty expense, net of royalty income, was $7.5
million, $14.4 million and $15.8 million for fiscal 2002, 2001, and 2000,
respectively.

COMPETITION

The infant consumer products industry is highly competitive. The Company
competes with a variety of distributors and manufacturers and believes that it
is the largest producer of infant bed coverings and bibs, enjoying approximately
one-third of infant bedding market share and one-half of bib and infant bath
item market share within these segments. The Company competes on the basis of
quality, design, price, service and

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packaging. The Company is a leader in its respective industry segment. Its
leadership results from the integration of extensive proprietary product design
with low-cost, high-quality global sourcing to produce and market high-value
merchandise to major customers. With a strong commitment to customer service,
the Company develops distinctive programs for individual customers and maximizes
retail productivity with aggressive pricing, quick replenishment merchandise
management and efficient customer order execution.

GOVERNMENT REGULATION; ENVIRONMENTAL CONTROL

The Company is subject to various federal, state and local environmental
laws and regulations which regulate, among other things, the discharge, storage,
handling and disposal of a variety of substances and wastes. The Company's
operations are also governed by laws and regulations relating to employee safety
and health, principally the Occupational Safety and Health Administration Act
and regulations thereunder.

The Company believes that it currently complies in all material respects
with applicable environmental, health and safety laws and regulations. Although
the Company believes that future compliance with such existing laws or
regulations will not have a material adverse effect on its capital expenditures,
earnings or competitive position, there can be no assurances that such
requirements will not become more stringent in the future or that the Company
will not incur significant costs in the future to comply with such requirements.

EMPLOYEES

At March 31, 2002, the Company had approximately 434 employees. None of the
Company's U. S. employees is represented by a labor union, and the Company
considers its relationship with its employees to be good. The Company's 149
employees in Mexico are represented by a labor union. The Company attracts and
maintains qualified personnel by paying competitive salaries and benefits and
offering opportunities for advancement.

INTERNATIONAL SALES

Sales to customers in foreign countries outside the United States are not
currently material to the Company's business.

ITEM 2. PROPERTIES

The Company's headquarters are located in Gonzales, Louisiana. The Company
rents approximately 17,211 square feet at this location under a lease that
expires April 25, 2007.

The following table summarizes certain information regarding the Company's
principal properties.

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(1) Lease expires April 25, 2007.

(2) Leases expire June 29, 2002, portions sub-leased.

(3) Lease expires January 15, 2003.

(4) Lease expires May 31, 2003 (renewable for one three-year period).

(5) Lease expires May 31, 2004.

(6) Lease expires March 31, 2005 (renewable for one two-year period).

(7) Lease expires April 30, 2004.

(8) Lease expires November 30, 2002.

Management believes that its properties are suitable for the purposes for
which they are used, are in generally good condition and provide adequate
production capacity for current and anticipated future operations. The Company's
business is somewhat seasonal so that during the late summer and fall months
these facilities are fully utilized, while at other times of the year the
Company has excess capacity.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company is involved in various legal proceedings
relating to claims arising in the ordinary course of its business. Neither the
Company nor any of its subsidiaries is a party to any such legal proceeding the
outcome of which, individually or in the aggregate, is expected to have a
material adverse effect on the Company's financial condition or results of
operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of the year ended March 31, 2002.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

The Company is authorized by its Articles of Incorporation to issue up to
50,000,000 shares of capital stock, all of which are designated Common Stock,
par value $1.00 per share.

COMMON STOCK

Effective April 10, 2001, the Company's common stock (the "Common Stock")
was removed from the listing of the New York Stock Exchange ("NYSE") as it fell
below the minimum standards of market capitalization for continued listing by
the NYSE. The Common Stock currently trades on the NASDAQ OTC Bulletin Board
with the ticker symbol "CRWS". The following table presents quarterly
information on

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the price range of the Company's Common Stock for the fiscal years ended March
31, 2002 and April 1, 2001. This information indicates the high and low sale
prices as reported by the NASDAQ.

As of June 7, 2002 there were issued and outstanding 9,421,437 shares of
the Company's Common Stock held by approximately 722 registered holders. At June
7, 2002, the Company's Common Stock closed at $0.64.

In fiscal 2000, the Company paid a dividend of $0.03 per share on its
Common Stock on June 27, 1999, September 26, 1999, and December 26, 1999. As
part of the conditions under its loan agreements and to conserve liquidity, the
Company has not paid a dividend since December 26, 1999. The Company has no
plans to resume payment of dividends.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data presented below for the five years ended March
31, 2002 is from the Company's financial statements. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
included elsewhere in this Annual Report.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

ACQUISITIONS AND DISPOSITIONS

In response to changing business conditions in the consumer products
industry, the Company made significant changes in its business operations over
the last two and one-half years. In addition to a program of cost reductions and
rationalization, the Company outsourced virtually all of its manufacturing to
domestic and foreign contract manufacturers with the exception of the specialty
hand wovens produced by Churchill Weavers and screen-printed infant bibs
produced by Burgundy in Mexico. The Woven Products division, with manufacturing
primarily in north Georgia, was sold on November 14, 2000 and net proceeds of
$32.3 million were used to reduce debt. Following the outsourcing of adult
bedding, the Roxboro, North Carolina plant was sold on June 14, 2001 and the
proceeds of $8.0 million were used to reduce debt. Also, the Company made a
decision to exit the Adult Bedding and Bath business, and its net assets related
to that business of $12.4 million were sold effective July 23, 2001. Proceeds of
the sale were $8.5 million cash plus the assumption of liabilities of $3.4
million as well as the assumption of certain contingent liabilities. Cash from
the sale was used to reduce debt. Following the sale of the Adult Bedding and
Bath business, the Company is now primarily in the infant and juvenile products
business, but in describing the results of operations for fiscal 2000 and 2001,
reference is made to all of the product groups. Because of the sale of assets
and the refinancing that occurred July 23, 2001, the historical results are not
indicative of the Company's future operations. The provision for impairment
recorded in 2001 includes $12.4 million for a computer system that was abandoned
in fiscal 2001. The effect of these transactions on fiscal 2001 operating
results is discussed below in the section "Results of Operations: Fiscal 2001
Compared to Fiscal 2000."

RESULTS OF OPERATIONS: FISCAL 2002 COMPARED TO FISCAL 2001

Total net sales for fiscal 2002 decreased $129.9 million, or 52.5%, to
$117.6 million. Net sales of bedroom and bath products decreased $70.6 million
to $19.9 million, net sales of throws decreased $52.1 million to $3.2 million,
and net sales of infant and juvenile products decreased $7.1 million to $94.5
million.

The decrease in sales of throws was due to the sale of the Woven Products
division on November 14, 2000. The decrease in sales of bedroom and bath
products was the result of the sale of the Adult Bedding division on July 23,
2001. Lower sales of infant and juvenile products were due to changes in buying
patterns by major retailers.

In fiscal 2002, cost of sales decreased to 78.0% of net sales from 92.5% in
fiscal 2001. The decrease relates primarily to changes in product mix as a
result of the divestments mentioned above. In addition, the Company incurred
lower manufacturing costs as a result of outsourcing.

Marketing and administrative expenses decreased $22.4 million, or 51.8% for
fiscal 2002 as the Company continued its restructuring. Marketing and selling
expenses decreased by $12.2 million from $19.3 million in fiscal 2001 to $7.1
million in fiscal 2002 as a result of the restructuring and reduced sales.
Administrative expenses decreased from $22.9 million to $12.7 million as cost
reductions were partially offset by restructuring expenses such as consulting,
legal and investment banking fees. Amortization of goodwill was $1.1 million for
both fiscal year 2002 and 2001.

For fiscal 2002, loss on disposition of assets was $34,000 compared to a
loss on disposition of assets of $6.5 million for fiscal 2001. The loss in
fiscal 2002 represented a loss on the sale of leasehold improvements in
connection with the move of the Company's subsidiary, Hamco. The loss in fiscal
2001 represented the loss on

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sale of the Woven Products division. Also in 2001, gains, primarily on the sale
of real property in Louisiana and North Carolina, were offset by other losses.
The provision for impairment of $28.2 million at April 1, 2001 includes a $4.9
million loss on sale of the Timberlake, North Carolina plant, a $10.9 million
impairment for the expected loss on sale of the Adult Bedding business and a
$12.4 million impairment for abandoned computer systems. Losses on sale of
inventory of $2.9 million and $13.3 million were also incurred in connection
with the sales of the Woven Products division and the Adult Bedding business,
respectively. This expense was included in cost of sales. Because of the sale of
assets and the refinancing that occurred July 23, 2001, the historical results
are not indicative of the Company's future operations.

Interest expense decreased by $7.8 million as a result of the restructuring
of the Company discussed in the Financial Position, Liquidity and Capital
Resources section below. Other income, net increased by $1.3 million due to a
reduction in other expenses.

In fiscal 2002, the tax benefit was $1.9 million due to a net operating
loss carryback resulting from the change in federal income tax regulations. In
fiscal 2001, the benefit of the operating losses was equivalent to an effective
tax rate of 0%. Due to the losses incurred, the Company has a net operating loss
carryforward of $16.9 million that is available to offset future taxable income,
although a valuation reserve has been established for the benefit of the
carryforward due to uncertainty regarding realization.

RESULTS OF OPERATIONS: FISCAL 2001 COMPARED TO FISCAL 2000

Total net sales for fiscal 2001 decreased $72.4 million, or 22.6%, to
$247.5 million. Net sales of bedroom and bath products decreased $45.1 million
to $90.5 million, net sales of throws decreased $16.0 million to $55.3 million,
and net sales of infant and juvenile products decreased $11.3 million to $101.6
million.

The decrease in sales of throws was due to the sale of the Woven Products
division on November 14, 2000. The decrease in sales of bedroom and bath
products was the result of decreased sales in the Studio bedding line which was
largely phased out during fiscal 2001, as well as the sale of the Woven Products
division. The decrease in sales of infant and juvenile products was primarily
attributable to decreased sales of infant bedding and Pillow Buddies(R) partly
offset by an increase in sales of infant bibs and bath products.

In fiscal 2001, cost of sales increased to 92.5% of net sales from 89.0% in
fiscal 2000. The increase resulted from inventory write downs of $2.9 million
and $13.3 million, respectively, related to the sale of the Woven Products
division and the Adult Bedding and Bath business, partially offset by lower
manufacturing variances resulting from the restructuring and outsourcing.

Marketing and administrative expenses decreased by $11.4 million, or 20.8%
for fiscal 2001 as the Company continued its restructuring. Marketing and
selling expenses decreased by $7.3 million from $26.6 million in fiscal 2000 to
$19.3 million in fiscal 2001 as a result of the restructuring and reduced sales.
Administrative expenses decreased from $27.1 million to $22.9 million as cost
reductions were partially offset by restructuring expenses such as consultants.
Goodwill amortization increased by $0.1 million to $1.1 million.

For fiscal 2001, loss on disposition of assets was $6.5 million,
representing the loss on sale of the Woven Products division, compared to nil in
the prior year. Gains, primarily on the sale of real property in Louisiana and
North Carolina, were offset by other losses. The provision for impairment of
$28.2 million includes a $4.9 million loss on sale of the Timberlake, North
Carolina plant, a $10.9 million impairment for the expected loss on sale of the
Adult Bedding business and a $12.4 million impairment for abandoned computer
systems. Losses on sale of inventory of $2.9 million and $13.3 million were also
incurred in connection with the sales of the Woven Products division and the
Adult Bedding business, respectively. This expense was included in cost of
sales. Because of the sale of assets and the refinancing that occurred July 23,
2001, the historical results are not indicative of the Company's future
operations.

Interest expense increased by $1.2 million as a result of higher interest
rates. Other income increased by $791,000 due to a reduction in other expenses.

In fiscal 2001, the benefit of the operating losses was equivalent to an
effective tax rate of 0% compared to 12.2% in fiscal 2000. Due to the losses
incurred, the Company had a net operating loss carryforward of

8

$55.9 million that was available to offset future taxable income, although a
valuation reserve has been established for the benefit of the carryforward due
to uncertainty regarding realization.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $5.4 million for the year
ended March 31, 2002 compared to cash provided by operating activities of $25.0
million for the year ended April 1, 2001. Net cash provided by investing
activities was $18.0 million compared to net cash provided by investing
activities of $24.2 million in the prior year period. Net cash used for
financing activities was $23.6 million compared to net cash used for financing
activities of $50.1 million in the prior year period. Total debt outstanding
decreased to $39.8 million at March 31, 2002 from $91.7 million at April 1,
2001. This decrease resulted from the repayment of debt from the sale of fixed
assets as well as the forgiveness of indebtedness. As of March 31, 2002, letters
of credit of $1.3 million were outstanding against the $3 million sub-limit for
letters of credit associated with the $19 million revolving credit facility. As
of March 31, 2002, the Company had revolving credit availability of $6.3
million.

The Company's ability to make scheduled payments of principal, to pay the
interest on, or to refinance its maturing indebtedness, to fund capital
expenditures or to comply with its debt covenants, will depend upon future
performance. The Company's future performance is, to a certain extent, subject
to general economic, financial, competitive, legislative, regulatory and other
factors beyond its control. Based upon the current level of operations, the
Company believes that cash flow from operations together with revolving credit
availability will be adequate to meet liquidity needs.

At March 31, 2002 and April 1, 2001, long-term debt consisted of:

On July 23, 2001 the Company completed a refinancing of its debt. The new
credit facilities include the following:

Revolving Credit of up to $19 million including a $3 million sub-limit for
letters of credit, $14.0 million drawn at closing. The interest rate is
prime plus 1.0% (5.75% at March 31, 2002) for base rate borrowings and
LIBOR plus 2.75% (4.65% at March 31, 2002) for Euro-dollar borrowings. The
maturity date is June 30, 2004. The facility is secured by a first lien on
all assets. The balance at March 31, 2002 was $5.5 million.

Senior Notes of $14 million with a fixed interest rate of 10% plus
additional interest contingent upon cash flow availability of 3%. The
maturity date is June 30, 2006 and the notes are secured by a first lien on
all assets. A minimum principal payment of $250,000 was paid on April 1,
2002 and minimum principal payments of $500,000 are due at the end of each
calendar quarter thereafter. In the event that required debt service
exceeds 70% of free cash flow (EBITDA less capital expenditures and cash
taxes paid), the excess of contingent interest and principal amortization
over 70% will be deferred until maturity of the Senior Notes in June 2006.
Contingent interest plus additional principal payments will be due annually
up to 70% of free cash flow.

Senior Subordinated Notes of $16 million with a fixed interest rate of 10%
plus an additional 1.65% payable by delivery of a promissory note due July
23, 2007. The maturity date is July 23, 2007 and the

9

notes are secured by a second lien on all assets. In addition to principal
and interest, a payment of $8 million is due on the earliest of (i)
maturity of the notes, (ii) prepayment of the notes, or (iii) sale of the
Company. The original issue discount of $4.1 million on this non-interest
bearing note at a market interest rate of 12% will be amortized over the
life of the notes. The remaining balance of $3.8 million is included in the
Consolidated Balance Sheet as of March 31, 2002.

The new credit facilities contain covenants regarding minimum levels of
Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"),
maximum total debt to EBITDA, maximum senior debt to EBITDA, minimum EBITDA to
cash interest, and minimum shareholders' equity. The bank facilities also place
restrictions on the amounts the Company may expend on acquisitions and purchases
of treasury stock and currently prohibit the payment of dividends.

Minimum annual maturities adjusted to reflect the July 23, 2001 refinancing
are as follows: (in thousands)

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* Includes $8 million non-interest bearing note issued at an original issue
discount of $4.1 million.

As part of the refinancing, the Company issued to the lenders warrants for
non-voting common stock that are convertible into common stock equivalent to 65%
of the shares of the Company on a fully diluted basis at a price of 11.3 cents
per share. The warrants are non-callable and expire in six years. The value of
the warrants of $2.4 million using the Black-Scholes option pricing model was
credited to additional paid-in capital in the second quarter of fiscal 2002. The
dilutive effect of these warrants on earnings per share for the 12 months ended
March 31, 2002 was $0.11 per share before extraordinary gain and $1.43 after
extraordinary gain. Also in the second quarter of fiscal 2002, the Company
recognized an extraordinary gain of $25.0 million representing forgiveness of
indebtedness income (net of $2.9 million of expenses incurred) in connection
with the refinancing.

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Below is a comparison of the April 1, 2001 balance sheet with the pro forma
impact of the refinancing and the disposition of the Adult Bedding and Bath
business:

CONDENSED BALANCE SHEET

IN MILLIONS

To reduce its exposure to credit losses and to enhance its cash flow, the
Company factors the majority of its trade accounts receivable. The Company's
factor establishes customer credit lines, and accounts for and collects
receivable balances. The factor remits payment to the Company on the due dates
of the factored invoices. The factor assumes all responsibility for credit
losses on sales within approved credit lines, but may deduct from its
remittances to the Company the amounts of customer deductions for returns,
allowances, disputes and discounts. The Company's factor at any time may
terminate or limit its approval of shipments to a particular customer. If such a
termination occurs, the Company may either assume the credit risks for shipments
after the date of such termination or cease shipments to such customer.

Management does not believe that inflation has had a material effect on the
Company's operations. If inflation increases, the Company will attempt to
increase its prices to offset its increased expenses. No assurance can be given,
however, that the Company will be able to adequately increase its prices in
response to inflation.

During fiscal 2002, the Company incurred approximately $1.5 million related
to restructuring charges due to the sale of the Adult Bedding division in July,
2001, the sale of the Wovens division in November, 2000, and the relocation of
the corporate headquarters. Management believes these expenses are
non-recurring. These cost were as follows (dollars in thousands):

Wages and benefits (including severance) paid to temporary
and terminated employees.................................. $ 850
Operating expenses.......................................... 795
Data collection and transfer costs.......................... 206
Vendor discounts and allowances............................. (356)
------
Total non-recurring restructuring charges................... $1,495
======

11

CRITICAL ACCOUNTING POLICIES

While the listing below is not inclusive of all of the Company's accounting
policies, the Company's management believes that the following policies are
those which are most critical and embody the most significant management
judgments and the uncertainties affecting their application and the likelihood
that materially different amounts would be reported under different conditions
or using different assumptions. These critical policies are:

Revenue Recognition: Sales are recorded when goods are shipped to
customers, and are reported net of returns and allowances in the consolidated
statements of operations and comprehensive income (loss).

Sales Returns and Other Allowances and Allowance for Doubtful
Accounts: The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amount of assets and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Specifically, management must make estimates of potential
future product returns related to current period product revenues. The Company's
sales arrangements do not generally include acceptance provisions or clauses.
Additionally, the Company does not typically grant its distributors or other
customers price protection rights or rights to return products bought, other
than normal and customary rights of return for defects in materials or
workmanship, and is not obligated to accept product returns for any other
reason. Actual returns have not historically been significant. Management
analyzes historical returns, current economic trends and changes in customer
demand when evaluating the adequacy of its sales returns and other allowances.

The Company factors the majority of its receivables. In the event a
factored receivable becomes uncollectible due to credit worthiness, the factor
bears the risk of loss. The Company's management must make estimates of the
uncollectibility of its non-factored accounts receivables. Management
specifically analyzes accounts receivable, historical bad debts, customer
concentrations, customer credit worthiness, current economic trends and changes
in its customers' payment terms when evaluating the adequacy of its allowance
for doubtful accounts. The Company's accounts receivable at March 31, 2002
totaled $12.5 million, net of the allowances of $1.8 million.

Inventory Valuation: The preparation of the Company's financial statements
requires careful determination of the appropriate dollar amount of the Company's
inventory balances. Such amount is presented as a current asset in the Company's
balance sheet and is a direct determinant of cost of goods sold in the statement
of operations and therefore has a significant impact on the amount of net income
reported in an accounting period. The basis of accounting for inventories is
cost, which is the sum of expenditures and charges, both direct and indirect,
incurred to bring the inventory quantities to their existing condition and
location. The Company's inventories are stated at the lower of cost or market,
with cost determined using the first-in, first-out ("FIFO") method, which
assumes that inventory quantities are sold in the order in which they are
manufactured or purchased. The Company utilizes standard costs as a management
tool. The Company's standard cost valuation of its inventories is adjusted at
regular intervals to reflect the approximate cost of the inventory under FIFO.
The determination of the indirect charges and their allocation to the Company's
work-in-process and finished goods inventories is complex and requires
significant management judgment and estimates. Material differences may result
in the valuation of the Company's inventories and in the amount and timing of
the Company's cost of goods sold and resulting net income for any period if
management made different judgments or utilized different estimates.

On a periodic basis, management reviews its inventory quantities on hand
for obsolescence, physical deterioration, changes in price levels and the
existence of quantities on hand which may not reasonably be expected to be used
or sold within the normal operating cycles of the Company's operations. To the
extent that any of these conditions are believed to exist or the utility of the
inventory quantities in the ordinary course of business is no longer as great as
their carrying value, a reserve against the inventory valuation is established.
To the extent that this reserve is established or increased during an accounting
period, an expense is recorded in the Company's statement of operations,
generally in cost of goods sold. Significant management judgment is required in
determining the amount and adequacy of this reserve. In the event that actual
results differ from management's estimates or these estimates and judgments are
revised in future periods, the Company may
12

need to establish additional reserves which could materially impact the
Company's financial position and results of operation.

As of March 31, 2002, the Company's inventories totaled $16.5 million, net
of reserves for slow moving and obsolete inventories of $2.2 million. Management
believes that the Company's inventory valuation together with recorded reserves
for slow moving and obsolete inventories, results in carrying the inventory at
lower of cost or market.

Derivative Instruments and Hedging Activities: The Company accounts for
derivative instruments and hedging activities in accordance with Statement of
Financial Accounting Standards ("SFAS") 133, Accounting for Derivative
Instruments and Hedging Activities, which was adopted by the Company on April 2,
2001. Under SFAS 133, derivative instruments are recognized in the balance sheet
at fair value and changes in the fair value of such instruments are recognized
currently in earnings unless specific hedge accounting criteria are met. At
March 31, 2002 and April 1, 2001 the Company had no derivative instruments.

Provisions for Income Taxes: The provisions for income taxes include all
currently payable federal, state and local taxes that are based upon the
Company's taxable income and the change during the fiscal year in net deferred
income tax assets and liabilities. The Company provides for deferred income
taxes based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates that will be in effect when the
differences are expected to reverse. Deferred tax assets have been reduced by a
valuation allowance, if necessary, in the amount of any tax benefits that, based
on available evidence, are not expected to be realized.

Valuation of Long-Lived and Intangible Assets and Goodwill: The Company
assesses the impairment of identifiable intangibles, long-lived assets and
related goodwill whenever events or changes in circumstances indicate that the
carrying value may not be recoverable based on estimates of future undiscounted
cash flows. Factors that are considered by management in performing this
assessment include, but are not limited to, the Company's performance relative
to historical or projected future operating results, the Company's intended use
of acquired assets or the Company's strategy for its overall business, and
industry or economic trends.

In the event that the carrying value of intangibles, long-lived assets and
related goodwill is determined to be impaired, such impairment is measured using
a discount rate determined by management to be commensurate with the risk
inherent in the Company's current business model. Net intangible assets, long-
lived assets and goodwill, including property and equipment, amounted to $26.4
million as of March 31, 2002.

As discussed below, on April 1, 2002, the Company implemented SFAS No. 142,
Goodwill and Other Intangible Assets, and as a result, will cease to amortize
approximately $23.0 million of goodwill but will continue to amortize other
intangible assets. Goodwill amortization expense recorded during 2002 amounted
to approximately $1.1 million. In lieu of amortization, the Company will be
required to perform an initial impairment review of its goodwill in 2003 and an
impairment review thereafter at least annually. The Company expects to complete
its initial impairment review prior to reporting its operating results for the
first quarter of 2003.

RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
141, Business Combinations, and SFAS 142, Goodwill and Other Intangible Assets.
SFAS 141 requires business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting and eliminates the use of
the pooling-of-interests method. The application of SFAS 141 did not affect any
of the Company's previously reported amounts included in goodwill or other
intangible assets. SFAS 142 requires that the amortization of goodwill cease
prospectively upon adoption and instead, the carrying value of goodwill be
evaluated using an impairment approach. Identifiable intangible assets will
continue to be amortized over their useful lives and reviewed for impairment in
accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of. SFAS 142 is effective for fiscal years
beginning after December 15, 2001, and was implemented by the Company on April
1, 2002. Beginning in 2003, the Company expects to discontinue amortizing
goodwill but will continue to amortize other long-lived

13

intangible assets. At March 31, 2002, goodwill approximated $23.0 million.
Goodwill amortization in 2002 was approximately $1.1 million, or $0.12 per basic
share and $0.06 per dilutive share. The Company is currently evaluating the
impact of the adoption of SFAS 142 on its consolidated financial statements.

Additionally, in August 2001, the FASB issued SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Although SFAS 144 supersedes SFAS
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, it retains most of the concepts of that standard,
except that it eliminates the requirement to allocate goodwill to long-lived
assets for impairment testing purposes and it requires that a long-lived asset
to be abandoned or exchanged for a similar asset be considered held and used
until it is disposed (i.e., the depreciable life should be revised until the
asset is actually abandoned or exchanged). Also, SFAS 144 includes the basic
provisions of Accounting Principles Board ("APB") Opinion No. 30, Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for presentation of discontinued operations in the income
statement but broadens that presentation to include a component of an entity
rather than a segment of a business, where that component can by clearly
distinguished from the rest of the entity. The provisions of SFAS 144 generally
are to be applied prospectively. SFAS 144 is effective for fiscal years
beginning after December 15, 2001, with earlier application encouraged. The
Company is currently evaluating the impact of the adoption of SFAS 144 on the
Company's consolidated financial statements.

FORWARD-LOOKING INFORMATION

This annual report contains forward-looking statements within the meaning
of the federal securities law. Such statements are based upon management's
current expectations, projections, estimates and assumptions. Words such as
"expects," "believes," "anticipates" and variations of such words and similar
expressions are intended to identify such forward-looking statements.
Forward-looking statements involve known and unknown risks and uncertainties
that may cause future results to differ materially from those anticipated. These
risks include, among others, general economic conditions, changing competition,
the level and pricing of future orders from the Company's customers, the
Company's dependence upon third-party suppliers, including some located in
foreign countries with unstable political situations, the Company's ability to
successfully implement new information technologies, the Company's ability to
integrate its acquisitions and new licenses, and the Company's ability to
implement operational improvements in its acquired businesses.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in interest rates on
debt, commodity prices and foreign exchange rates. The exposure to interest rate
risk relates to its floating rate debt, $5.5 million of which was outstanding at
March 31, 2002 compared to $60.3 million at April 1, 2001. Each 1.0 percentage
point increase in interest rates would impact pretax earnings by $55,000 at the
debt level of March 31, 2002 (excludes $38.0 million of fixed rate debt.) and
$603,000 at the debt level of April 1, 2001. The exposure to commodity price
risk primarily relates to changes in the price of cotton, which is a principal
raw material in a substantial number of the Company's products. The exposure to
foreign exchange rates relates to its Mexican manufacturing subsidiary. During
the fiscal year ended March 31, 2002, this subsidiary manufactured products for
the Company with a value of approximately $3.9 million compared to $4.4 million
during the fiscal year ended April 1, 2002. The Company's investment in the
subsidiary was approximately $2.6 million at March 31, 2002 and $3.0 million at
April 1, 2001.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See pages F-1 through F-19 herein.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The Company has neither changed its independent accountants nor had any
disagreements on accounting or financial disclosure with such accountants.

14

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information with respect to the Company's directors and executive
officers is set forth in the Company's Proxy Statement for the Annual Meeting of
Shareholders (the "Proxy Statement") under the captions "Election of Directors"
and "Executive Officers" and is incorporated herein by reference. The
information with respect to Item 405 of Registration S-K is set forth in the
Proxy Statement under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information set forth under the caption "Executive Compensation" in the
Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the caption "Voting Rights and Principal
Shareholders" in the Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the caption "Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement is incorporated
herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULE, AND REPORTS ON FORM 8-K

(a)1. FINANCIAL STATEMENTS

The following consolidated financial statements of Registrant are filed
with this report and included in Part II, Item 8:

(a)2. FINANCIAL STATEMENT SCHEDULE

The following financial statement schedule of Registrant is filed with this
report:

Schedule II -- Valuation and Qualifying Accounts............ Page 16

All other schedules not listed above have been omitted because they are not
applicable or the required information is included in the financial statements
or notes thereto.

15

CROWN CRAFTS, INC. AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K

SCHEDULE II

- ---------------

(1) Deductions from the reserve for doubtful accounts represent the amount of
accounts written off reduced by any subsequent recoveries.

(2) Credits relate to assets held for sale at April 1, 2001.

16

(a)3. EXHIBITS

Exhibits required to be filed by Item 601 of Regulation S-K are included as
Exhibits to this report as follows:

- ---------------

(1) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended October 1, 1995.

(2) Incorporated herein by reference to Registrant's Current Report on Form 8-K
dated August 22, 1995.

(3) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended March 28, 1993.

(4) Incorporated herein by reference to Registrant's Registration Statement on
Form S-8, filed April 8, 1994. (Reg. No. 33-77558).

(5) Incorporated herein by reference to Registrant's Current Report on Form 8-K
dated November 13, 1995.

(6) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended March 29, 1998.

(7) Incorporated herein by reference to Registrant's Current Report on Form 8-K
dated August 4, 1999.

(8) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended April 1, 2001.

(9) Incorporated herein by reference to Registrant's Current Report on Form 8-K
dated July 23, 2001.

(10) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 2001.

(11) Filed herewith.

(b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter
ending March 31, 2002.

18

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

CROWN CRAFTS, INC.

By: /s/ E. RANDALL CHESTNUT
------------------------------------
E. Randall Chestnut
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

19

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

20

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
Crown Crafts, Inc.

We have audited the accompanying consolidated balance sheets of Crown
Crafts, Inc. and subsidiaries ("the Company") as of March 31, 2002 and April 1,
2001, and the related consolidated statements of operations and comprehensive
income (loss), changes in shareholders' equity (deficit), and cash flows for
each of the three years in the period ended March 31, 2002. Our audit also
included the financial statement schedule listed at Item 14. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Crown Crafts, Inc. and
subsidiaries as of March 31, 2002 and April 1, 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 2002, in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia
May 31, 2002

F-1

CROWN CRAFTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND APRIL 1, 2001
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

See notes to consolidated financial statements.

F-2

CROWN CRAFTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FISCAL YEARS ENDED MARCH 31, 2002, APRIL 1, 2001, AND APRIL 2, 2000

See notes to consolidated financial statements.

F-3

CROWN CRAFTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FISCAL YEARS ENDED MARCH 31, 2002, APRIL 1, 2001, AND APRIL 2, 2000

See notes to consolidated financial statements.

F-4

CROWN CRAFTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED MARCH 31, 2002, APRIL 1, 2001, AND APRIL 2, 2000

See notes to consolidated financial statements.

F-5

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED MARCH 31, 2002, APRIL 1, 2001 AND APRIL 2, 2000

NOTE 1 -- DESCRIPTION OF BUSINESS

Crown Crafts, Inc. and its subsidiaries (collectively, the "Company")
operate in the Infant Products segment within the Consumer Products industry.
The Infant Products segment consists of infant bedding, bibs, infant soft goods
and accessories. Sales are generally made directly to retailers, primarily mass
merchants, large chain stores, gift stores and department and specialty stores.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The consolidated financial statements include the
accounts of Crown Crafts, Inc. and its subsidiaries. All significant
intercompany balances and transactions are eliminated in consolidation.

The Company's fiscal year ends on the Sunday nearest March 31. Fiscal years
are designated in the consolidated financial statements and notes thereto by
reference to the calendar year within which the fiscal year ends. The
consolidated financial statements encompass 52 weeks for fiscal years 2002 and
2001 and 53 weeks for fiscal year 2000.

Cash and Cash Equivalents: The Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents.

Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant estimates are
made with respect to the allowances related to accounts receivable for customer
deductions for returns, allowances, and disputes. The Company has a certain
amount of discontinued and irregular raw materials and finished goods which
necessitate the establishment of inventory reserves which are highly subjective.
Actual results could differ from those estimates.

Revenue Recognition: Sales are recorded when goods are shipped to
customers, and are reported net of reserves for estimated returns and allowances
in the consolidated statements of operations and comprehensive income (loss).
Reserves for returns and allowances are estimated based on historical rates.

Inventory Valuation: Inventories are valued at the lower of first-in,
first-out, cost or market.

Depreciation and Amortization: Depreciation of property, plant and
equipment is computed using the straight-line method over the estimated useful
lives of the respective assets. Estimated useful lives are 15 to 40 years for
buildings, three to seven and one-half years for machinery and equipment, five
years for data processing equipment, and eight years for furniture and fixtures.
The cost of improvements to leased premises is amortized over the shorter of the
estimated life of the improvement or the term of the lease.

The Company reviews for impairment, on a quarterly basis, long-lived assets
and certain identifiable intangibles whenever events or changes in circumstances
indicate that the carrying amount of any asset may not be reasonable based on
estimates of future undiscounted cash flows. In the event of impairment, the
asset is written down to its fair market value. Impairment of goodwill and
write-down, if any, is measured based on estimates of future undiscounted cash
flows including interest charges. Assets to be disposed of are recorded at the
lower of net book value or fair market value less cost to sell at the date
management commits to a plan of disposal and are classified as assets held for
sale on the consolidated balance sheet.

Goodwill, which represents the unamortized excess of purchase price over
fair value of net identifiable assets acquired in business combinations, is
amortized using the straight-line method over periods of up to 30 years. The
Company reviews the carrying values and useful lives of goodwill and other
long-lived assets if the facts and circumstances suggest that their
recoverability may have been impaired. Goodwill is stated net of

F-6

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

accumulated amortization of $6.3 million and $5.2 million at March 31, 2002 and
April 1, 2001, respectively. The Company believes that no material impairment of
goodwill or other long-lived assets exists at March 31, 2002.

Foreign Currency Translation: The assets and liabilities of the Company's
Mexican subsidiary are translated into U.S. dollars at current exchange rates,
and revenues and expenses are translated at average exchange rates. The effect
of foreign currency transactions was not material to the Company's results of
operations for fiscal years 2002, 2001 and 2000.

Provisions for Income Taxes: The provisions for income taxes include all
currently payable federal, state and local taxes that are based upon the
Company's taxable income and the change during the fiscal year in net deferred
income tax assets and liabilities. The Company provides for deferred income
taxes based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates that will be in effect when the
differences are expected to reverse. Deferred tax assets have been reduced by a
valuation allowance, if necessary, in the amount of any tax benefits that based
on available evidence, are not expected to be realized.

Treasury Stock: In accordance with Georgia statutes and the Company's
articles of incorporation, in fiscal 2001 treasury stock was retired and
included in authorized but unissued shares.

Stock-Based Compensation: The Company accounts for stock option grants
using the intrinsic value method and only issues stock options that have an
exercise price that is equal to or more than the fair value of the underlying
shares at the date of grant. Accordingly, no compensation expense is recorded in
the accompanying statements of operations and comprehensive income (loss) with
respect to stock option grants.

Segments and Related Information: In 1999, the Company adopted Statement
of Financial Accounting Standards ("SFAS") 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement requires certain
information to be reported about operating segments on a basis consistent with
the Company's internal organizational structure. Management's analysis concluded
that the Company operated in two operating segments, 1) adult home furnishings
and juvenile products, and 2) infant products. Following the sale of the Adult
Bedding division in July, 2001, the Company operates in only the infant products
segment. Required disclosures have been made in Note 11.

Net Income (Loss) Per Share: Net income (loss) per share is calculated in
accordance with SFAS 128, Earnings per Share, which requires dual presentation
of basic and diluted earnings (loss) per share on the face of the income
statement for all entities with complex capital structures. Earnings (loss) per
common share are based on the weighted average number of shares outstanding
during the period. Basic and diluted weighted average shares are calculated in
accordance with the treasury stock method, which assumes that the proceeds from
the exercise of all options are used to repurchase common shares at market
value. The number of shares remaining after the exercise proceeds are exhausted
represents the potentially dilutive effect of the options. There was no
difference between basic and diluted weighted average common shares outstanding
for fiscal years 2001 and 2000. Common stock equivalents of 429,385 related to
warrants held by the Company's lenders are excluded from the fiscal 2001 diluted
loss per common share calculation because such are anti-dilutive.

F-7

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the computation of basic and diluted net income
(loss) per common share for fiscal years 2002, 2001 and 2000.

Derivative Instruments and Hedging Activities: The Company accounts for
derivative instruments and hedging activities in accordance with SFAS 133,
Accounting for Derivative Instruments and Hedging Activities, which was adopted
by the Company on April 2, 2001. Under SFAS 133, derivative instruments are
recognized in the balance sheet at fair value and changes in the fair value of
such instruments are recognized currently in earnings unless specific hedge
accounting criteria are met. At March 31, 2002 and April 1, 2001 the Company had
no derivative instruments.

Recently Issued Accounting Standards: In July 2001, the Financial
Accounting Standards Board ("FASB") issued SFAS 141, Business Combinations, and
SFAS 142, Goodwill and Other Intangible Assets. SFAS 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting and eliminates the use of the pooling-of-interests
method. The application of SFAS 141 did not affect any of the Company's
previously reported amounts included in goodwill or other intangible assets.
SFAS 142 requires that the amortization of goodwill cease prospectively upon
adoption and instead, the carrying value of goodwill be evaluated using an
impairment approach. Identifiable intangible assets will continue to be
amortized over their useful lives and reviewed for impairment in accordance with
SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. SFAS 142 is effective for fiscal years beginning after
December 15, 2001, and was implemented by the Company on April 1, 2002.
Beginning in 2003, the Company expects to discontinue amortizing goodwill but
will continue to amortize other long-lived intangible assets. At March 31, 2002,
goodwill approximated $23.0 million. Goodwill amortization in 2002 was
approximately $1.1 million, or $0.12 per basic share and $0.06 per dilutive
share. The Company is currently evaluating the impact of the adoption of SFAS
142 on its consolidated

F-8

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

financial statements. In lieu of amortization, the Company will be required to
perform an initial impairment review of its goodwill in 2003 and an impairment
review thereafter at least annually. The Company expects to complete its initial
impairment review prior to reporting its operating results for the first quarter
of 2003.

Additionally, in August 2001, the FASB issued SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Although SFAS 144 supersedes SFAS
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, it retains most of the concepts of that standard,
except that it eliminates the requirement to allocate goodwill to long-lived
assets for impairment testing purposes and it requires that a long-lived asset
to be abandoned or exchanged for a similar asset be considered held and used
until it is disposed (i.e., the depreciable life should be revised until the
asset is actually abandoned or exchanged. Also, SFAS 144 includes the basic
provisions of Accounting Principles Board ("APB") Opinion No. 30, Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for presentation of discontinued operations in the income
statement but broadens that presentation to include a component of an entity
rather than a segment of a business, where that component can by clearly
distinguished from the rest of the entity. The provisions of SFAS 144 generally
are to be applied prospectively. SFAS 144 is effective for fiscal years
beginning after December 15, 2001, with earlier application encouraged. The
Company is currently evaluating the impact of the adoption of SFAS 144 on the
Company's consolidated financial statements.

Reclassifications: Certain prior year financial statement balances have
been reclassified to conform with the current year's presentation.

NOTE 3 -- DISCONTINUANCE OF CERTAIN BUSINESSES

During the first quarter of fiscal 2001, the Company sold surplus real
property in North Carolina and Louisiana with net proceeds of $888,000 and a
gain on sale of $466,000.

The Company completed the sale of the Wovens division on November 14, 2000
with proceeds of approximately $36.6 million (before selling expenses) compared
to a book value of $42.2 million. The Wovens division had annual sales of
approximately $61.4 million and $82.0 million in fiscal 2001 and 2000,
respectively, and was included in the adult home furnishing and juvenile
products segment. The Wovens division included the throws and decorative home
accessories product group and part of the bedroom products group. The disposal
was made as part of a plan to reduce debt and restructure the Company's
operations. Included in the sale were inventory, buildings, machinery and
equipment at sites in Calhoun, Dalton and Chatsworth, Georgia; Blowing Rock,
North Carolina; and Manchester, New Hampshire. Details of the loss on sale are
as follows:

The write-down of inventory of approximately $2.9 million was included in
cost of products sold. The loss on sale of property, plant and equipment and
selling and other expenses were included in loss on disposition of assets.
Selling and other expenses included costs for investment bankers, lawyers, and a
special key employee retention program.

F-9

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On June 14, 2001, the Company completed the sale of the Timberlake, North
Carolina plant. Proceeds of $8.0 million were used to reduce debt. On July 17,
2001, the Roxboro, North Carolina outlet store was sold and the proceeds of
$500,000 were used to reduce debt.

As part of the plan to reduce debt and restore profitability, the Company
made a decision to exit the Adult Bedding and Bath business and its net assets
related to that business of $12.4 million were sold effective July 23, 2001.
Proceeds of the sale were $8.5 million cash plus the assumption of liabilities
of $3.4 million as well as the assumption of certain contingent liabilities.
Cash from the sale was used to reduce debt.

NOTE 4 -- INVENTORIES

Major classes of inventory were as follows:

Inventory is net of reserves for inventories classified as irregular or
discontinued of $2.2 million in both fiscal 2002 and 2001.

NOTE 5 -- FINANCING ARRANGEMENTS

Factoring Agreement: The Company assigns the majority of its trade
accounts receivable to a commercial factor. Under the terms of the factoring
agreement, the factor remits payments to the Company on the average due date of
each group of invoices assigned. The factor bears credit losses with respect to
assigned accounts receivable that are within approved credit limits. The Company
bears losses resulting from returns, allowances, claims and discounts. Factoring
fees, which are included in marketing and administrative expenses in the
consolidated statements of operations, were $761,000, $2.2 million, and $2.8
million, respectively, in 2002, 2001, and 2000. Factor advances were at $0 at
both March 31, 2002 and April 1, 2001.

Notes Payable and Other Credit Facilities: At March 31, 2002 and April 1,
2001, long term debt consisted of:

At April 1, 2001, the Company had committed lines of credit totaling $30.2
million with two banks at a floating rate of interest which at April 1, 2000 was
12.0%. No fees or compensating balances were required under those arrangements,
and the lines were fully drawn at April 1, 2001. Annual average borrowings and

F-10

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

weighted average interest rates under those arrangements were $43.5 million at
11.89% in 2001 and $52.9 million at 8.95% in 2000. The facilities were secured
by substantially all of the Company's assets.

On July 23, 2001 the Company completed a refinancing of its debt. The new
credit facilities include the following:

Revolving Credit of up to $19 million including a $3 million sub-limit for
letters of credit, $14.0 million drawn at closing. The interest rate is
prime plus 1.00% (5.75% at March 31, 2002) for base rate borrowings and
LIBOR plus 2.75% (4.65% at March 31, 2002) for Euro-dollar borrowings. The
maturity date is June 30, 2004. The facility is secured by a first lien on
all assets. The balance at March 31, 2002 was $5.5 million. The Company had
$6.3 million available at March 31, 2002.

Senior Notes of $14 million with a fixed interest rate of 10% plus
additional interest contingent upon cash flow availability of 3%. The
maturity date is June 30, 2006 and the notes are secured by a first lien on
all assets. A minimum principal payment of $250,000 was paid on April 1,
2002 and minimum principal payments of $500,000 are due at the end of each
calendar quarter thereafter. In the event that required debt service
exceeds 70% of free cash flow (EBITDA less capital expenditures and cash
taxes paid), the excess of contingent interest and principal amortization
over 70% will be deferred until maturity of the Senior Notes in June 2006.
Contingent interest plus additional principal payments will be due annually
up to 70% of free cash flow.

Senior Subordinated Notes of $16 million with a fixed interest rate of 10%
plus an additional 1.65% payable by delivery of a promissory note due July
23, 2007. The maturity date is July 23, 2007 and the notes are secured by a
second lien on all assets. In addition to principal and interest, a payment
of $8 million is due on the earliest of (i) maturity of the notes, (ii)
prepayment of the notes, or (iii) sale of the Company. The original issue
discount of $4.1 million on this non-interest bearing note at a market
interest rate of 12% will be amortized over the life of the notes. The
remaining balance of $3.8 million is included in the Consolidated Balance
Sheet as of March 31, 2002.

The new credit facilities contain covenants regarding minimum levels of
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"),
maximum total debt to EBITDA, maximum senior debt to EBITDA, minimum EBITDA to
cash interest, and minimum shareholders' equity. The bank facilities also place
restrictions on the amounts the Company may expend on acquisitions and purchases
of treasury stock and currently prohibit the payment of dividends.

Minimum annual maturities adjusted to reflect the July 23, 2001 refinancing
are as follows: (in thousands)

- ---------------

* Includes $8 million non-interest bearing note issued at an original issue
discount of $4.1 million.

As part of the refinancing, the Company issued to the lenders warrants for
non-voting common stock that are convertible into common stock equivalent to 65%
of the shares of the Company on a fully diluted basis at a

F-11

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

price of 11.3 cents per share. The warrants are non-callable and expire in six
years. The value of the warrants of $2.4 million using the Black-Scholes option
pricing model was credited to additional paid-in capital in the second quarter
of fiscal 2002. The dilutive effect of these warrants on earnings per share for
the 12 months ended March 31, 2002 was $0.11 per share before extraordinary gain
and $1.43 after extraordinary gain. Also in the second quarter of fiscal 2002,
the Company recognized an extraordinary gain of $25.0 million representing
forgiveness of indebtedness income (net of $2.9 million of expenses incurred) in
connection with the refinancing.

Below is a comparison of the April 1, 2001 balance sheet with the pro forma
impact of the refinancing and the disposition of the Adult Bedding and Bath
business:

CONDENSED BALANCE SHEET

NOTE 6 -- INCOME TAXES

The (benefits) provisions for income taxes are summarized as follows:

F-12

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that comprise the deferred tax
liabilities and assets are as follows:

As of March 31, 2002, the Company has federal income tax net operating loss
carryforwards totaling $16.9 million which begin expiring in the year ending
March 2020.

The following reconciles the income tax benefit at the U.S. federal income
tax statutory rate to that in the financial statements:

NOTE 7 -- RETIREMENT PLANS

The Company maintained an Employee Stock Ownership Plan, which provided for
annual contributions by the Company at the discretion of the Board of Directors
for the benefit of eligible employees. Contributions could be made either in
cash or in shares of the Company's common stock. Participation in the plan was
open to all Company employees who were at least twenty-one years of age and who
had been employed by the Company for at least one year. The Company recognized
expense of $76,000, and $50,000, respectively, for its cash contributions to the
plan in fiscal 2001 and 2000. Effective April 1, 2001, the Employee Stock
Ownership Plan was terminated.

Effective January 1, 1996, the Company established an Employee Savings Plan
under Section 401(k) of the Internal Revenue Code. The plan covers substantially
all employees. Under the plan, employees generally may elect to exclude up to
15% of their compensation from amounts subject to income tax as a salary
deferral

F-13

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

contribution. The Board of Directors determines each calendar year the portion,
if any, of employee contributions that will be matched by the Company. Beginning
in calendar 1998, the Company has made or will make a matching contribution to
each employee in an amount equal to 100% of the first 2% and 50% of the next 1%
contributed by the employee. The Company's matching contribution to the plan
including the utilization of forfeitures was approximately $186,000, $553,000,
and $814,000, respectively, for fiscal 2002, 2001, and 2000.

NOTE 8 -- STOCK OPTIONS

The Company accounts for its stock option plans using the intrinsic value
method established by APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and its related interpretations. Accordingly, no compensation cost
has been recognized in the Company's financial statements for its stock based
compensation plans. The Company complies with the disclosure requirements of
SFAS No. 123, "Accounting for Stock Based Compensation", which requires pro
forma disclosure regarding net earnings and earnings per share determined as if
the Company had accounted for employee stock options using the fair value method
of that statement.

The Company's 1976 and 1995 Stock Option Plans provide for the grant of
non-qualified stock options to officers and key employees at prices no less than
the market price of the stock on the date of each grant. In addition, the 1995
Stock Option Plan provides for the grant of incentive stock options to employees
and a fixed annual grant of 2,000 non-qualified stock options to each
non-employee director on the day after each year's annual meeting of
shareholders. Through April 1, 2001, non-qualified options covering a total of
54,000 shares had been issued to non-employee directors and no incentive options
had been issued. Effective with the sale of the Adult Bedding division in July,
2001, these options were canceled. During fiscal year 2002, 14,000 non-
qualified options were issued to non-employee directors. One-third of the
non-qualified options become exercisable on each of the first three
anniversaries of their issuances and the options expire on the fifth anniversary
of their issuance.

A total of 5,955,000 shares of common stock have been authorized for
issuance under the plans. At March 31, 2002, 2,578,141 options were reserved for
future issuance. The options outstanding at March 31, 2002 expire through July
23, 2011, have a weighted average remaining contractual life of 6.46 years, and
include 194,250 options exercisable at March 31, 2002 with a weighted average
exercise price of $4.47.

The following table summarizes stock option activity during each of the
most recent three fiscal years:

F-14

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about stock options outstanding
and exercisable at March 31, 2002 by range of exercise price:

Option holders may pay the option price of options exercised by
surrendering to the Company shares of the Company's stock that the option holder
has owned for at least six months prior to the date of such exercise. Option
holders may also satisfy their required income tax withholding obligations upon
the exercise of options by requesting the Company to withhold the number of
otherwise issuable shares with a market value equal to such tax withholding
obligation.

The weighted-average grant-date fair value of options granted in 2002,
2001, and 2000, respectively, was $0.23, $0.56, and $2.44 per share. For
purposes of the pro forma disclosure, the fair value of each option was
estimated as of the date of grant using the Black-Scholes option-pricing model
and is amortized to expense ratably as the option vests. The following table
summarizes the assumptions used to value options. Had compensation cost for the
Company's stock option grants been determined and recorded as expense at the
grant dates ($74,000, $565,000, and $303,000 for fiscal years 2002, 2001, and
2000, respectively), the Company's pro forma net income (loss) and income (loss)
per share would have been as follows:

F-15

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9 -- MAJOR CUSTOMERS

The table below indicates customers representing more than 10% of sales.

- ---------------

* Less than 10%.

NOTE 10 -- COMMITMENTS AND CONTINGENCIES

Lease Commitments: At March 31, 2002, the Company's minimum annual rentals
under noncancelable operating leases, principally for warehousing and office
facilities, were as follows:

Total rent expense was $2.3 million, $4.5 million, and $6.5 million,
respectively, for the years ended March 31, 2002, April 1, 2001, and April 2,
2000.

Certain of the Company's products are manufactured and sold pursuant to
license arrangements that include, among others, Disney(R). The licensing
agreements for the Company's designer brands generally are for a term at
inception of one to six years, and may or may not be subject to renewal or
extension. At March 31, 2002, the Company's minimum royalty guarantees were as
follows:

The Company's total royalty expense, net of royalty income, was $7.5
million, $14.4 million, and $15.8 million, for fiscal 2002, 2001, and 2000,
respectively.

NOTE 11 -- SEGMENT AND RELATED INFORMATION

The Company's principal segments include 1) adult home furnishing and
juvenile products and 2) infant products. The adult home furnishing and juvenile
products segment consists of bedroom and bath products (adult comforters, sheets
and towels), throws and juvenile products (primarily Pillow Buddies(R)). The
infant products segment consists of infant bedding, bibs, and infant soft goods.
The Company tracks revenues and

F-16

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

operating profit information for these two business segments. After the sale of
the Adult Bedding division in July, 2002, the Company is primarily in the infant
products segment.

The Company's manufacturing and distribution operations were also divided
into adult home furnishing and juvenile and infant products. The Company's
facilities in North Carolina (sold July, 2001) and Kentucky support adult home
furnishing and juvenile products. The Company's facilities in Louisiana,
California and Mexico support infant products. Assets, capital expenditures,
depreciation and amortization are tracked for adult home furnishing and juvenile
products as a whole and for infant products.

Financial information attributable to the Company's business segments for
the years ended March 31, 2002, April 1, 2001, and April 2, 2000, is as follows
(in thousands):

The key features used by decision makers are the level of operating income
relative to revenues and assets. In addition, EBITDA is used as a key management
tool.

F-17

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revenues for individual product groups within these business segments are
summarized below.

F-18

CROWN CRAFTS, INC. AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K
SELECTED QUARTERLY FINANCIAL INFORMATION

UNAUDITED QUARTERLY FINANCIAL INFORMATION
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

- ---------------

(1) In fiscal year 2002, the Company recorded an extraordinary gain of $25
million related to the restructuring of debt on July 23, 2001 as discussed
in Note 5, Financing Arrangements.

(2) Net loss, basic net loss per share and diluted net loss per share for the
fourth quarter of the fiscal year ended April 1, 2001 were increased by
$24.2 million, $2.81 and $2.81, respectively, as a result of the provision
for impairment and loss on sale of inventory related to the Adult Bedding
and Bath business. Further, net loss, basic net loss and diluted net loss
per share for the fourth quarter of the fiscal year ended April 1, 2001 were
increased by $12.4 million, $1.44 and $1.44, respectively, due to a
provision for impairment on abandoned computer systems.

(3) The Company recorded an income tax receivable related to changes in the
income tax law of $1.8 million in the fourth quarter of 2002.

F-19

INDEX TO EXHIBITS